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Illinois would tax more services, including out-of-state service providers

  • May 26, 2017 | Gail Cole

 A budget bill seeks to impose a special tax on streaming services in Illinois.

Update 6.6.2018: Illinois has adopted economic nexus with the enactment of House Bill 3342. Beginning October 1, 2018, out-of-state retailers that have at least $100,000 in gross receipts from sales of goods or services in Illinois, or 200 separate sales of the same, are required to collect and remit Illinois tax. 

Illinois has a very narrow tax base. The Retailers’ Occupation Tax applies to persons engaged in the business of selling tangible personal property. Persons engaged in the sale of services are only subject to the Service Occupation Tax if the sale of a service depends on the sale of tangible personal property.

Efforts are underway to tax more services in Illinois. Senate Bill 09 (Budget Economic Stabilization Fund Act), which was narrowly approved by the Senate, seeks to tax laundry, structural pest control, private detective, and tattoo and body piercing services, among others. It also would establish a new 5 percent tax on satellite television, and an additional 1 percent entertainment tax on streaming services such as Netflix. Taxing streaming services is contentious: Chicago imposed a “Netflix tax” on streaming services in 2015, and it promptly triggered a lawsuit that is ongoing.

However, SB 09 seeks to exempt “tangible personal property purchased for transfer incidental to performance of a taxable service.”

House Speaker Michael Madigan has said the Senate proposal “will be thoughtfully considered … as part of our efforts to pass a full-year balanced budget that will end the budget impasse,” but many in Springfield are pessimistic. Governor Bruce Rauner is intent on freezing property tax rates, and Madigan has not shared the House budget plan. Illinois has been at a standoff over the budget, and if an agreement isn’t reached by July 1, Fitch Ratings has warned that the state will face “another credit downgrade” (Chicago Tribune).

Tax remote sales of services

Although it didn’t make it into the Senate’s budget plan, an amendment that would establish economic nexus in Illinois was slipped into a bill that originally sought only to make a technical change in the Aircraft Use Tax Law. Under the proposed amendment to Senate Bill 474, an out-of-state seller that makes sales of services to Illinois purchasers is considered to be “a serviceman maintaining a place of business” in Illinois and is required to collect and remit sales and use tax as of January 1, 2018, when one of the following is true:

  • The cumulative gross receipts from sales of service to purchasers in Illinois are $150,000 or more
  • The serviceman enters into 200 or more separate transactions for sales of service to Illinois consumers

The measure is similar to other state economic nexus policies, with one glaring exception: Instead of taxing remote sales of tangible personal property, it would tax remote sales of services. It will be interesting to see if the measure garners any support in the coming months. Currently, it is being held in the Senate Committee on Assignments.

Keeping up with sales tax changes in all states is an uphill battle, but it’s essential for businesses to remain in compliance. Tax automation software facilitates sales and use tax compliance in all states. Learn more.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.